From U.S. Pat. No. 6,012,044 a user interface for a financial advisory system is known. The financial advisory system includes a graphical input mechanism for calibration of a desired level of investment risk. A set of available financial products, such as a set of mutual funds, and a predefined volatility, such as the volatility of the Market Portfolio are received. The settings associated with the graphical input mechanism are constrained based upon the set of available financial products. Additionally, the calibration of the units of the graphical input mechanism may be expressed as a relationship between the volatility associated with a setting of a graphical input mechanism and the predefined volatility.
The volatility or standard deviation is an important measure for the analysis of a sequence of data samples. The concept of volatility is used in virtually all fields of science and technology for the analysis of data being representative of a real world physical, medical, sociological or financial variable or entity. The volatility is used as a measure for the degree of variability of such data samples. A variable that fluctuates widely over time has a high volatility. One that is stable has low volatility.
The standard definition for volatility as used in finance is: the volatility of a random variable is the standard deviation of its return. In practice, volatilities are calculated for such variables as the market value of a Portfolio, interest rates, stock prices, exchange rates, etc., and are essential for option pricing.
A common disadvantage of the prior art is that the development of a variable as reflected by a corresponding sequence of data samples cannot be related to the volatility of the sequence of data samples in a meaningful way, especially if more than one variable is to be considered at the same time. In the case of stock market data, the comparison of the stock performance for an investment period, of—say—a month, cannot be compared and valuated to the annualized volatility in a meaningful and intuitive way in prior art systems.